Missing stairs or stair rails were one of the problems
most often mentioned by insurance agents where they were
asked what sort of property defects might make it
difficult or impossible for a purchaser to obtain
insurance.
Photo courtesy Jon Randolph

"As an insurance agent, I wish more home
inspectors were aware of what conditions can lead to
insurance problems. There's nothing more
frustrating than telling a first-time home buyer that their dream
house doesn't qualify for standard insurance. Almost
inevitably, the first words out of their mouths are, "But it
passed inspection'"

- Joshua Putnam

"But it passed inspection!"

Frustrating words for any buyer, seller or any real estate
professional, home inspectors included.

Questions of "insurability" are concern to
everyone involved in a real estate transaction. Many home
inspectors will at least comment verbally on conditions they
suspect will likely make coverage difficult or expensive, real
estate agents would prefer that insurance costs or
availability not crop up as unexpected problems, lenders
won't close without insurance, and some insurance agents and
attorneys - and most home inspection clients - feel they ought to
be alerted by home inspectors if they find such problems.

It turns out, however, that this is not always easy to do.
Different insurance companies have different underwriting
standards, and when an insurance company does find a problem,
they may deal with it differently from another insurer.

This brief guide - prepared with the cooperation of Chicago area
insurance agents representing major companies
writing homeowners and landlord's insurance in Northern
Illinois - is intended to assist interested parties in
identifying and understanding some of the problems identified by
insurance agents as commonly triggering increased premiums or
difficulty in obtaining insurance in our market.

This is not intended as a complete list, not all of these
possible issues will be relevant to every property, and not every
insurance company will view a given potential issue the same
way.

But every one of the problems listed them is likely to be
spotted during an insurance company's exterior "field
underwriting inspection" or be picked up a on a standard
insurance application. By having some ability to spot such
problems early-on inspectors and other real estate professionals
can help prevent surprises . top

1) Insurance companies have become
very risk adverse with regard to potential water damage (see the
section on CLUE reports below). Roofs which are worn, damaged or
otherwise obviously near end of their useful lives or are likely
to be leaking were the problem most frequently cited by insurance
agents as a potential underwriting issue.

This roof is has passed the end of its service life. At
the top (ridge) of the roof there is a improvised patch, likely
applied because this area had been leaking. The shingles have
been badly eroded by water flowing down the roof to the right of
the windows, and the shingles' protective surface
“granules” are completely worn off where water is
backing up out of the end of the gutter at lower left.

Many insurance companies will decline to write a policy on
this property, or will require roof replacement, and some
may require an interior inspection for water damage.top

(2) Ivy and other
climbing plants

Ivy and similar plant materials covering
buildings are a problem not only because plant growth can block
gutters, downspouts and drains, but because such plant growth
retain can moisture around wood trim surrounding windows and
doors. Plant growth can also speed the deterioration of wooden
structural members such as ledgers, support posts, decks, stairs
and railings, and plant material adds to the difficulty of
routine inspection of such areas for water or structural
damage.

The ivy on this house is winding its way in and out of the
siding. After working its way under the siding as thin tendrils
it has gradually increased in diameter to more than an
inch, and is starting to lift the siding off the sheathing
below

This is the same house as at left Here, the ivy has
reached the roof and is clogging the gutters and downspouts.
In addition the ivy is as holding moisture
against the wood trim, where paint is peeling and
exposed wood is rotting.

Plant growth can also cause "roofing" problems, for
example in the case of a flat roofed buildings by retaining
moisture against the parapets (the low walls above the roof) and
by encouraging water entry under the cap material protecting the
top of the brick walls.

Some insurance companies may require that such growth be cut
back, and may require interior inspection for possible water
damage. top

(3)
Missing or damaged stairs or railings

Insurance company inspections may not note subtle code
violations such as stair trend height, but they generally will
catch obvious deficiencies.

One problem that was mentioned by several agents we surveyed
were stairs built without required rails or guards , or missing
stairs that had never been installed or had been removed or not
replaced.

These stairs and porch rails were built without the
required handrails and guards.

This is an indication that the porch may have been built
without a permit.

Inspectors encounter many dramatic examples of
"doorways to nowhere".

This example opened onto a play area used by children.

Such stairs - either never constructed or removed and never
replaced - are often an indication of possibly unpermitted
or uninspected work, and may invite additional investigation
of the property by an insurer.
Photo courtesy Jon Randolph

Frame buildings in close proximity to
other structures Frame buildings closer than 10 feet to other
structures can be an underwriting problem, especially in dense
urban areas). The concern here is fire spread. One agent writing
business in Chicago noted that only two of the companies he
represented would currently write such policies.top

(5) Adjacent
empty lots or deteriorated or vacant structures

Adjacent empty lots or deteriorated or
vacant structures, especially burnt out units on the same block
in urban areas. Such concerns are increasing as a result of
foreclosures .top

(6) EIFS or Dryvit
"synthetic stucco" over frame construction

Non-specialists cannot be expected to
identify such material visually, but if you see a
"stucco" exterior on a structure built after 1976, and
especially after 1990, there is a good chance it is a synthetic
stucco product.

If it can be determined from another source - for example and an
owner or builder - that it is likely a synthetic stucco product,
you need to be aware of possible insurance issues.

If such materials are not properly installed and maintained even
small holes or cracks can admit enough water to create extensive
water damage behind the exterior surface.

Obtaining insurance for houses with such exteriors can be
extremely difficult; many companies simply will not write it, and
those that do usually require high deductibles, high premiums, or
both.

EIFS and similar materials should be identified by a home
inspector, and will be identified by an insurance company's
"Field Underwriting" Inspection, and every insurance
agent we surveyed identified a property with synthetic
stucco is a "red flag" that there may problems
obtaining insurance. top

(7) Older electrical
systems, even if in "good" condition"

Older electrical systems were the interior problem most often
mentioned by agents.

For many insurance companies any electrical service of less
than 100A is suspect, even if it uses circuit breakers rather
than fuses.

An example of older fuse based service and loadside
(sub) panel showing both the square and round styles of fuses.
The panel covers have been removed for inspection.

On may such panels it is not necessary to remove the panel
cover ("deadfront") to determine if fuses are
installed - there is a door at the front of the panel that
can be opened to expose the fuses or circuit breakers without
exposing the user to the risk of touching live wiring.

As insurance companies are suspicions of fuse based systems,
it's often worth checking for fuses if you can do so
without removing the deadfront. Photo courtesy Electric
007

Why insurance companies are suspicious of older electrical
systems.

Someone has taken an older panel with a access door at the
front, closed off the door opening with a piece of sheet metal,
and then used a piece of cardboard behind the cover as an
"insulator" to prevent live damaged wiring inside the
panel from shorting to the panel cover.

In most cases when written information about an upgraded
electrical service panel is available to real estate
professionals it will indicate that the service is not a problem
- if the seller can demonstrate that the service has been
recently updated and then inspected by the local building
department, it will usually be to a circuit breaker based service
of at least the minimum size required by insurance companies for
that type of dwelling. top

(8) Knob and Tube
wiring

Insurance agents frequently mentioned Knob and Tube (K&T)
wiring as a red flag for insurance companies. K&T, found
in houses build prior to 1940, consists of
black fabric-covered wiring supported by white porcelain
insulators. Often portions of the original K&T wiring
have been replaced with more modern
materials.

The likeliest place to observe K&T wiring is in
unfinished areas such as basement ceilings or in attics,
but K&T may also be observed entering to the
inside of walls and ceilings. This example at right was found
tucked into the corner of a attic dormer.

Ageing K&T wiring is potentially hazardous
because its fabric insulation brittle's and deteriorates
as the wiring ages. In addition the connections of K&T
to modern wiring are often performed in haphazard
manner. as in this example. Photo courtesy Jack
Feldman

When K&T wiring is present many
insurers require inspection by a electrician,
or partial or
complete replacement of the K&T wiring.
top

(9)
Recent major upgrades

If an applicant for insurance states that
there has been recent updating of items such as electrical,
plumbing, HVAC (Heating / Ventilating/ Air Conditioning) systems,
new roofs, or basement waterproofing or foundation crack sealing,
some companies may request to review receipts for the repairs,
and require that the work has been performed by a "licensed
contractor". top

(10) Pre-1900
construction

For pre-1900 construction some companies
expect to see major updating of all major systems such as
electrical, plumbing, HVAC and roofing.

Because insurance companies may require documentation of
upgrades, real estate professions can speed the application and
underwriting process by encouraging sellers to locate such
materials, and request copies of missing invoices from
contractors if required, early on in the transaction.
It's also useful to home inspectors if manuals for
furnaces, central AC, water heaters and the like are available at
the time of inspection, as these often list the
manufacture's requirements for power, venting, and the like.
top

Plus - A special
case: Previous claims or inquiries discovered during a CLUE
search

CLUE (Comprehensive Loss Underwriting
Exchange) is the system used by insurance companies to research
the past history of a property on policy holder. It contains
information from many US insures, goes back five years, and may
report conditions that a seller did not realized should have been
listed on discloser forms.

The CLUE database may also include information about inquires
(for example "Does my policy cover damage caused by a
flooded basement?") even if no claim is filed. Claims or
inquiries filed by a previous or current owner can affect the
insurability of a property; the most frequently mentioned
potential problems result from claims for losses due to water
damage.

A history of previous claims may trigger an interior inspection
of the structure by the insurance company, and also
suggests that it may be more difficult to find a company willing
to issue a policy, or that it may be more expensive for a buyer
to insure their new home.

When possibly it's a good idea to ask the seller about
claims filed or inquires made over the last five years,
this can aid in preparing a disclosure form and as a "heads
up" on questions that may be raised by a buyer's
insurer. If the seller may have filed claims or made inquiries,
or has been in the home less than five years and wishes to be
aware of any problems were reported by previous owners, it may be
worthwhile to run a CLUE "Home Seller's
Disclosure Report" from ChoicePoint Inc.top

________________________________________________________________________________________________
This FAQ was written for Paragon Property Services Inc, Evanston, Ill by
Michael Thomas. I am always interested in reader's comments
on all aspects of property inspection. If you have questions
or comments about this article please feel free to
contact me by e-mail or at
847-475-5668.